Thoughts on paying Class 3 voluntary NICs (UK State Pension)

[AlanMacI]

I'm currently in the process of paying voluntary NICs to boost my entitlement to a UK State pension in the future. I have 9 qualifying years, have paid for 5 historic Class 2 years and have been given the option to pay future Class 2 payments - which I intend to do for the next 17 years. This would put me at 31 qualifying years at retirement. I also have 4 historic years that they've given me the option to pay at Class 3 - this would cost £3090 (versus the £741 I paid for my 5 historic Class 2 years) but would give me 35 qualifying years.

Now I understand that each full qualifying year adds about £275 to my pre-tax pension - so in my case an outlay now of £3090 on the more expensive Class 3 years would pay me an extra £1100 per year at retirement i.e. it would pay for itself in 3 years. Which would seem to be about 10 times the return on what I put into my PRSA.

But in reading back on historic posts here I see a few people saying they'll pay the cheaper Class 2 years and not bother with the Class 3 years. Assuming they have they money available and can't make up the years otherwise is there a reason for this? I guess my fear is that with the impending UK pensions crisis the rules for people in my situation may be changed and any investment on my end up lost?

 

[NoRegretsCoyote]

Now I understand that each full qualifying year adds about £275 to my pre-tax pension - so in my case an outlay now of £3090 on the more expensive Class 3 years would pay me an extra £1100 per year at retirement i.e. it would pay for itself in 3 years. Which would seem to be about 10 times the return on what I put into my PRSA.

You're right. Even Class 3 contributions pay for themselves very quickly.

I pay Class 3 contributions and there is no other investment I can make with this kind of expected return.

 

[cwc456]

But in reading back on historic posts here I see a few people saying they'll pay the cheaper Class 2 years and not bother with the Class 3 years. Assuming they have they money available and can't make up the years otherwise is there a reason for this? I guess my fear is that with the impending UK pensions crisis the rules for people in my situation may be changed and any investment on my end lost?

I think it's still a no-brainer even with Class 3 contributions under the current rules. As you say though, the rules may change in future and there have been quite a few changes in recent decades. Hard to know what's best when you're still a long way out from retirement.